Office Refinance With Vacancy or Expiring Leases

An office building can have tenants paying today and a difficult refinance ahead. A large lease may expire near the loan’s maturity. A renewal may require a costly buildout. Vacant suites may need months of work before a new tenant starts paying.

Prepare the next financing request around those dates and cash needs. Start with Jaken Finance Group’s commercial refinance review to outline the property, current debt, and financing goal. For an office asset, add a clear explanation of what happens when each major lease ends.

Separate collected rent, signed rent, and projected rent

Build three views of the property’s income:

View	What to show	Question it answers
Collected	Rent received each month, with arrears and one-time receipts identified	What cash has actually arrived?
Contractual	Signed leases, amendments, scheduled increases, and concessions	What do the documents say is due?
Projected	Proposed leases, renewal assumptions, downtime, and future rents	What must happen for the plan to work?

Keep all three dated. Reconcile the rent schedule to the property accounts. If a tenant prepaid, explain why one month’s cash receipt is unusually high. If rent is overdue, show the balance separately.

For your own planning, avoid treating an unsigned proposal as current revenue. Ask the reviewing lender to explain which income it accepts and any conditions attached.

Put lease expirations beside the loan maturity

The OCC’s commercial real estate handbook directs bank examiners to review rent rolls, tenant quality, and expiring leases. It also calls for assessing how tenant turnover could affect debt coverage. Occupancy alone therefore gives an incomplete picture. OCC handbook, page 80

Create a calendar with one row per tenant. Include annual rent, square feet, lease end date, renewal notice deadline, and any termination right. Mark the loan maturity on the same calendar.

Then total the rent attached to each expiration period. A small suite paying a high rent can matter more than its floor area suggests. Highlight the largest tenant and any group of leases ending close together. Use the calendar to choose which renewal conversations need attention first.

Turn renewal conversations into a document file

Label every renewal by its current stage: discussion, written proposal, letter of intent, signed amendment, or rent commenced. Keep the latest version and note unresolved terms.

For a signed renewal, summarize the new term, rent, free-rent period, landlord work, and completion conditions. A signature does not mean the work is paid for or the higher rent has started.

Show three dates separately: signing, possession, and the start of rent payments. For example, a tenant could sign in October, receive the space in December, and begin paying in March. If your loan matures in January, the signed lease and the January cash forecast tell different parts of the story. Attach the agreed schedule rather than moving March’s rent into January’s income.

Have your leasing team and attorney confirm notice dates and document meaning. If a tenant plans to leave, state the expected move-out date and the plan for that specific suite. A direct explanation is more useful than a forecast that quietly assumes every tenant renews.

Test a vacancy before choosing a loan amount

Here is a hypothetical planning example, not a funded transaction, loan quote, or lender approval standard.

Assume an office property’s annual rent collections are $600,000. Annual operating expenses are $240,000. Its simplified net operating income, or NOI, is $360,000 before debt payments and capital costs. Assume annual debt payments of $270,000.

Now test a tenant paying $120,000 per year leaving at the start of the forecast. The suite stays vacant for six months, then a replacement starts paying the same rent. Hold operating expenses and debt payments constant. Assume no additional concessions or lost expense reimbursements.

Annual cash-flow line	Base case	Six-month vacancy
Rent collected	$600,000	$540,000
Operating expenses	$240,000	$240,000
Simplified NOI	$360,000	$300,000
Debt payments	$270,000	$270,000
Cash before leasing and capital costs	$90,000	$30,000

The lost rent is $120,000 ÷ 12 × 6 = $60,000. Assume another $75,000 for tenant improvements and $15,000 in leasing commissions. The stressed year then has a $60,000 cash shortfall: $30,000 minus $90,000.

Annual totals can hide an earlier cash shortage. Put receipts and payments into individual months. A contractor deposit may come due before replacement rent begins. Add a slower leasing case, and revise the assumptions for actual concessions, reimbursements, and bids.

Fund the work as well as the debt payments

The OCC notes that office re-leasing costs include tenant improvements and leasing commissions. These costs may sit outside NOI, yet still affect cash flow. Review them separately when assessing cash available to meet obligations. OCC handbook, pages 119–120

For each vacant or expiring suite, prepare a budget for construction, design, permits, commissions, and concessions. Add building work such as a roof or elevator project separately.

Next to every expense, name its funding source and payment date. Distinguish cash available now from loan funds that might be held back until conditions are met. Avoid counting the same dollars toward closing costs, leasing work, and emergency reserves.

Compare permanent financing with a defined bridge plan

Request a permanent financing review using the property’s present income and lease schedule. If the requested proceeds depend on work or leasing still ahead, compare a bridge proposal against the monthly cash forecast.

For a bridge plan, write down the event expected to support repayment: completed work, rent commencement, sustained collections, or a supported sale. Test whether those events still fit if leasing slips. The OCC’s refinance-risk guidance recommends testing changing expenses, financing terms, and collateral values when evaluating future repayment. OCC refinance-risk guidance

Compare net funds available after payoff and costs, any required cash contribution, holdbacks, and extension conditions. Use the commercial term sheet guide to organize questions about a proposal. The office bridge guide provides background for properties undergoing work or leasing.

Separate the payoff gap from the operating reserve

Use two cash sheets when comparing refinance proposals. The first covers the closing itself. Start with the funds actually available at closing, then subtract the existing debt payoff and transaction costs. Identify any lender-controlled reserve or future advance that is included in a headline loan amount but unavailable to pay off the old loan.

The second sheet covers ownership after closing. Start with unrestricted cash left in the property’s account. Enter tenant work, commissions, monthly cash deficits, and other planned spending on their expected dates. Keep a separate contingency for changes you cannot schedule precisely.

Ask these questions before relying on a proposal:

• Is the proposed amount fully funded at closing, or partly available later?
• Which expenses must the owner pay before reimbursement?
• What documents or leasing milestones release a holdback?
• How much cash remains after the closing contribution and known work?

A workable payoff does not automatically fund the leasing plan. If the two sheets reveal a gap, use it to compare a smaller renovation scope, additional committed equity, or a different financing structure. Discuss those choices before paying for a plan that depends on cash you do not yet have.

Submit an office refinance package people can follow

Use the commercial loan document checklist and add these office-specific items:

• Current rent schedule and monthly operating results for the past year.
• Signed leases, amendments, and a dated renewal-status summary.
• Lease expiration calendar tied to the current loan maturity.
• Suite-level leasing budgets, bids, and expected rent commencement dates.
• Monthly base and downside cash forecasts with funding sources identified.
• Current loan balance, maturity, payoff information, requested proceeds, and available cash.

Begin with a short note explaining the main issue and the decision you need. For example: “Our largest lease expires before maturity; here are the renewal terms and the cash needed if the tenant leaves.”

Start a commercial refinance review, or submit your office financing request when the initial package is ready. Bring the actual lease dates and cash plan so the discussion can focus on your property’s next step.